Assume that you want to accumulate $20,000 as a down payment on a home. You believe that you can save $2,000 per semiannual period, and your bank will pay interest of 6% per year, or 3% per semiannual period. How long will it take you to accumulate the desired amount?
The accumulated amount of $20,000 represents the future value of an annuity of $2,000 per semiannual period. Therefore, we must use the Future Value of Annuity of $1 table (Table 9-3 in the text) and solve for the interest factor or table factor as follows:
Table factor = $20,000/$2,000 = 10.00
Using Table 9-3, you must scan down the 3% column until you find a table value that is near 10.00 . The closest table value you find is 10.159 . That table value corresponds to nine periods. Therefore, if $2,000 is deposited per semiannual period and the money is invested at 3% per semiannual period, it will take nine semiannual periods (4 1/2 years) to accumulate $20,000.
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